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Twitter business model is "build it and they will come"
Commentary: They have 'big, hairy audacious goal,' but will it work?
By Therese Poletti, MarketWatch
Last Update: 12:01 AM ET Jul 28, 2009
SAN FRANCISCO (MarketWatch) -- The recurring question of how the tech startup Twitter Inc. is going to make money has been the talk of Silicon Valley over the last two weeks, after the publication of stolen company documents put the spotlight on the issue again.
I'm not going to rehash the overwrought debate, now referred to as Twittergate, over whether or not TechCrunch should have published documents that were allegedly stolen by a hacker in France and given to the blog. Co-founder Biz Stone told Reuters late last week that the documents were notes from meetings, out of date, and not necessarily accurate. But he was not more specific. See TechCrunch post about Twitter documents here.
"The key takeaway there is that we're thinking big and we're in it for the long haul," Stone told Reuters at a Fortune magazine tech conference last week.
Indeed, in meeting notes published by TechCrunch, some of which were six months old, Twitter executives talked about a goal of being the first to reach one billion users.
That goal would probably be considered by the authors of the management classic book, "Built to Last," a "big hairy audacious goal," a long-term vision so daring that it almost seems impossible and that could take decades to realize.
Meeting notes also reiterated prior statements by Twitter co-founders that they hope to remain a stand-alone company, and eventually go public.
But it was also pretty clear from some notes that Twitter's founders have been flailing about in search of a way to turn their popular micro-blogging service into a revenue-generating company. They seem to be developing a "build it and they will come" business, and one note asked "What do we want to be when we grow up?"
The first way Twitter does plan to generate revenue appears to be through its business users, which are now accustomed to using Twitter for free. In notes that talk about revenue plans, "certified/commercial/verified accounts" have a question "1st?"
Twitter's business focus was confirmed last week, when the company released a guide called Twitter 101 on its company blog, on how to use Twitter. It includes examples of businesses using Twitter to make money or improve customer relationships. One case study cited computer maker Dell Inc.DELL, which occasionally tweets specials and coupons.
"Dell Outlet has booked more than $3 million in revenue attributable to its Twitter posts," says Twitter 101. Dell said awareness of its outlet has grown too. "The uplift has been more than we dreamed," according to Stefanie Nelson, manager of demand generation at Dell Outlet, quoted in the Twitter 101 document.
So Dell is making money from Twitter, but what about Twitter?
Twitter's next step will probably be charging companies some sort of fee, or maybe some slice of revenue attributable to a tweet sent to all its followers. But there is always the risk that some businesses will balk at paying for a service that had been free. Twitter is obviously trying to head those fears off, showing examples directly tied to revenue generation, such as Dell.
Managing the Twitter phenomenon itself, though, is also time consuming. With millions of users sending out short messages ranging from major news to the inane, a whole host of startups are forming, such as TweetDeck, Seesmic, Brizzly, and others which seek to organize the chaos of Twitter. Samir Arora, the founder and CEO of Glam Media in New York, said his firm is monetizing Twitter via Tinker.com, a site where users can search for hot topics on Twitter, and, yes, see related ads.
At a TechCrunch conference a few weeks ago, a top executive from the airline Virgin America, said she had "one and a half" employees monitoring Twitter. "We watch every tweet," said Porter Gale, vice president of marketing at Virgin America.
The Twitter co-founders told me at the D7 conference in May that they believe their business is similar to Google Inc. GOOG, which built its search engine before it figured out how to generate revenue.
But Google was faster to figure it out. It launched AdWords, its first system to sell ads related to search in October 2000, two years after incorporating. Twitter's service is now three years old, having been launched in July 2006, and is still running about $55 million in venture funding.
"Maybe it's the ecosystem that will make money first," said Lise Buyer, founder and principal of Class V Group, an IPO advisory firm in Palo Alto. She added, though, that she does not consider herself one of the "Twitterati," meaning that she does not frequently tweet.
"We are the Milton Berle stage when TV first came out," she said. "We don't always know how to use something new in the beginning."
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